Small company IPOs hit a century in 2017

For the first time, more than 100 firms launch IPOs; raise a total of Rs 1,267 cr; 30 more IPOs lined up

The buoyancy in initial public offerings (IPOs) doesn’t seem to be confined to the big issues, as the small and medium enterprises (SMEs), too, have a seen a record run in 2017. 

According to data compiled from the stock exchanges, 2017 saw 105 companies launch their IPOs on the SME platform to raise a total of Rs 1,267 crore. The amount raised so far this year is roughly equal to the combined amount raised on the platform since its inception four years ago. 

Improving investor confidence on the SME segment along with overall buoyancy in the primary markets has led to this sharp increase.

Investment bankers expect this upbeat mood in the SME space to continue. Close to three dozen companies will launch their IPOs over the next four-six months. The new issuances will be from diverse sectors ranging from pharma, media and retail.

“SME platform offers a unique opportunity for the smaller companies to list. Easier regulations have made the framework flexible and reduced the compliance burden. The confidence of investors in the platform is also increasing thanks to some high-quality issues we saw in the segment. The pipeline also looks solid as we are expecting issues worth Rs 500 crore in the next six months,” said B Madhuprasad, chairman, Keynote Corporate Services.

The stock exchanges had launched the SME platform in 2012 to cater to the smaller business houses which cannot fulfil the requirements for floating a regular IPO. While 173 companies are listed on the BSE SME platform, on the NSE Emerge platform, 95 companies are listed.

Market regulator Securities and Exchange Board of India (Sebi) had come up with special relaxations for the SMEs to encourage their listing. SME companies file earning results once in six months as against once in three months by the main-board companies. To float an IPO, they needn’t meet the three-year profitability clause. Unlike a company listing on the main-board, stock exchanges approve the offer documents filed by SMEs. After listing on the SME platform, the companies also have an opportunity to shift to the main-board. Till date, 34 companies in the BSE SME platform have migrated to the main-board. Comparable data in the NSE was not available to be quoted. In order to migrate to the main-board, a company needs to have paid-up capital between Rs 10 crore and Rs 25 crore. If the market capitalisation exceeds Rs 25 crore, the company needs to mandatorily shift to the main-board.

The platform does have its own challenges. Retail investors are discouraged from participating on the platform given the high risk involved. Sebi had fixed a minimum trading size of Rs 1 lakh. Due to this, there is not enough liquidity in a majority of the stocks listed on these platforms.